Hospitals and health systems face pressure to curb costs and increase quality, prompting them to look closely at spending to see if there are opportunities to standardize and streamline operations. Controlling costs in corporate services — non-clinical functions that include information technology, revenue cycle management, supply chain and more — can go a long way toward helping healthcare organizations manage their total cost of care.
To gain a better understanding of hospital and health system corporate services spending patterns, the Healthcare Financial Management Association (HFMA) surveyed a group of healthcare organization leaders, including C-level executives, vice presidents and directors. The survey was in the field for two weeks during November 2019 and involved 114 respondents from around the country. Navigant, a Guidehouse company, analyzed the research HFMA conducted. The following sections discuss key takeaways from the survey.
The current state of corporate services spending
For most healthcare organizations, corporate services spending represents a meaningful portion of their budgets. While the term corporate services can be defined in many ways, in the context of this survey, it encompasses administration, finance, information technology, human resources, supply chain, revenue cycle, marketing, facilities, real estate and plant operations. Nearly half of the provider executives surveyed indicate they are spending at least 10% of their total operating revenue on these areas, with one out of four spending 12% or more. Health systems are more efficient than hospitals with their corporate services spend, according to survey results. Hospitals are almost three times as likely to spend 12% or more on these functions when compared to health systems.
“It’s not surprising that stand-alone hospitals typically spend more on back office functions than health systems,” says Chad Mulvany, director of HFP Perspectives and Analysis for HFMA. “Health systems can leverage economies of scale to spread relatively fixed costs over more units of activity. That scale also makes it easier for health systems to acquire more sophisticated and specialized capabilities in these areas.”
A decrease in spending without compromising quality is possible
Nearly three-quarters of provider executives believe their corporate services spending could decrease without negatively impacting quality or efficiency. And more than one-third (36%) say they could cut it by 10% or more. Optimization in this area could free up key funds to be applied elsewhere for more mission-critical tasks.
“Revenue growth remains a constant challenge for hospitals and health systems due to such aspects as stagnant reimbursement and meager inpatient growth, prompting many providers to grow inorganically via mergers and acquisitions (M&A) while targeting corporate services for meaningful cost reductions,” says Robert Green, partner at Guidehouse. “Corporate services will likely become more of a target area for greater short- and long-term cost reductions going forward as hospital budgets tighten even further due to the COVID-19 pandemic. This economic reality requires providers to explore creative opportunities to simplify and streamline a complex organizational structure while consolidating, automating and outsourcing functions to drive more efficient and effective corporate and shared services delivery.”
Figure 1: Corporate services spend
Q: What is your annual spend for corporate services as a percentage of total operating revenue?